Investment and Capital Constraints: Repatriations Under the American Jobs Creation Act

NBER Working Paper No. w15248

Number of pages: 59Posted: 18 Aug 2009Last Revised: 02 Nov 2014

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Date Written: August 2009

Abstract

The American Jobs Creation Act (AJCA) significantly lowered US firms' tax cost when accessing their unrepatriated foreign earnings. Using this temporary shock to the cost of internal financing, we examine the role of capital constraints in firms' investment decisions. Controlling for the capacity to repatriate foreign earnings under the AJCA, we find that a majority of the funds repatriated by capital constrained firms were allocated to approved domestic investment. While unconstrained firms account for a majority of repatriated funds, no increase in investment resulted. Contrary to other examinations of the AJCA, we find little change in leverage and equity payouts.

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